Recently, a law firm asked the IRS to reconsider a ban on partners also serving as employees of a company as the practice becomes more common. “The government has a problem in that dual status is de facto at this point,” said Leigh Griffith, a partner at Waller Lansden Dortch & Davis LLP, adding that LLC interests are often given to those in middle management and secondary roles. In the past, the IRS has not allowed individuals to receive a Form W-2 and a Schedule K-1 from a partner because of the complexity of differentiating the income and to avoid situations in which individuals could take advantage of employee benefits and the favorable tax treatment of profits interests.
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